Remarks to Manufacturers on the Foreign Sales Corporation-Extraterritorial Income Bill

The last time I spoke with you all was on September 24, 2003. The week before that speech, Sen. Baucus and I introduced the JUMPSTART OUR BUSINESS STRENGTH ACT, the JOBS Act,in the middle of Hurricane Isabel. Today, I am delivering this speech just before our legislative hurricane begins. Later today, probably around 2 in the afternoon, we will begin debate on the JOBSAct.

The JOBS Act was voted out of the Finance Committee on October 1st, in a 19 to 2 bipartisanvote. The JOBS Act will repeal the current FSC-ETI regime and use all of the money from repealto provide a 3 point tax rate cut on income from U.S.-based manufacturing. We start phasing inthose cuts this year. Unlike the pending Ways and Means bill and other bills that will be offeredduring the upcoming debate, these cuts apply to all who manufacture in America, regardless of their.

Sole proprietors, partnerships, farmers, individuals, family businesses, multinationalcorporations, foreign companies that set up manufacturing plants in the U.S. -- all of these manufacturing enterprises will benefit.

The JOBS bill also includes the Homeland Reinvestment Act, sponsored by Sen. Smith, Sen. Ensign and Sen. Boxer. The whole JOBS bill is slanted toward manufacturing. Even the international tax reforms are targeted to manufacturers. Overall domestic losses, interest allocation,repealing the 90 percent AMT foreign tax credit limit are all examples of provisions that you haveasked for. We have supported manufacturing. I must now ask manufacturing to support us. Overthe next several days, there will be many challenges to our bill. Like all bills, there is never completeagreement on an approach. Some members do not favor including the Homeland Reinvestment Actin this bill. I anticipate we will have votes on that measure.

Our bill contains a temporary haircut on the rate reduction that some members would like toremove and others would like to retain. In my view, the haircut removes an important domesticmanufacturing incentive for multinational companies. We create an incentive by offering a tax cutto expand manufacturing in the U.S., but take back the cut if you operate outside the U.S.That doesn’t make sense for the long-term, which is why we phase it out in the JOBS bill,and many want that phase-out accelerated. We will have amendments to strike all the internationalprovisions. There will be amendments to expand the NOL carryback period to 5 years, and somemembers want to accelerate the phase-in of the manufacturing rate cut. They believe this wouldimprove the bill.

But one amendment that will not be an improvement is a proposal to scrap the manufacturingtax cut and international reforms in favor of an across the board rate cut. My guess is the most theycan get from this is a 1.5 percent rate cut. I understand the desire for this simpler approach to cuttingtaxes, but a top-level rate cut would only go to the biggest corporations in America. Local familyheldS corporations or partnerships which presently get ETI benefits get nothing from this. The JointCommittee states that 89 percent of all FSC-ETI benefits go to manufacturing. FSC-ETI repeal willnot create a large tax increase on the services industry. But repeal will be a $50 billion tax increaseon manufacturing. If we redirect FSC-ETI repeal money to an across the board corporate cut, thenit will be on the back of the manufacturing sector. Manufacturing is not a revenue raiser!

The people pushing a flat corporate rate cut say our manufacturing definition is too vague,and that it is too difficult to calculate manufacturing income. Our core definition of manufacturingis the same definition used for both FSC and ETI. This definition is 20 years old. Treasury claimsit is too difficult to allocate income and expenses in determining the amount of manufacturingincome. But for 20 years, Treasury has had administrative pricing rules that tell taxpayers how toallocate expenses in figuring FSC-ETI benefits. If they really wanted to support manufacturing, theywould find a way to do this.

We have supported you and now we need you to support us. I would like for NAM to makepassage of the JOBS bill a “key vote” for its members. I also ask you to “key vote” any amendmentthat would strip our bill, whether it is an amendment to strike all the international provisions or anamendment to strike everything in favor of a flat corporate rate cut. We have a strong bipartisan billin the JOBS Act, and bipartisanship is the only way we will get it out of the Senate. Plus the factthat it is revenue neutral.

There is one other attack circulating on our bill, and it is coming from outside of Congress.

Some lobbyists have suggested that we don’t have to repeal the FSC/ETI regime this year. They saysanctions don’t matter. After all, they argue, sanctions only start at 5 percent, and the decline of thedollar will take care of that. I’ll bet you anything these guys don’t represent anyone on the retaliationlist. For those on the list, sanctions do matter. In fact, the lower value of the dollar against the Euromerely restores the status quo of the 1990s for a lot of American companies. The recent declinehelps them regain lost market share in Europe. Why Congress would want to deprive them of thatopportunity is beyond me. Besides, there is no guarantee that the value of the dollar won’t go uptomorrow, leaving America’s exporters in a much worse situation than they are in today. It is justplain wrong for us to gamble their future on the volatile international currency market.

Other lobbyists suggest we can just “cut a government check” to the U.S. exporter hurt bythe sanctions. This suggestion is fraught with peril. First, it is likely that the WTO would find sucha scheme to be a prohibited export subsidy, thus continuing the cycle of non-compliance andretaliation. Second, the scheme is totally unworkable. It would probably require a new governmentbureaucracy to administer – we want to encourage manufacturing jobs, not government jobs.

It has also been suggested that the U.S. government could simply pay compensation toforeign governments rather than comply with our international obligations. While this suggestionis theoretically possible, it is not realistic. Under the World Trade Organization dispute settlementsystem there is only one way a nation can bring itself into compliance with an adverse ruling –conform the WTO-inconsistent measure with the report adopted by the Dispute Settlement Body.

As long as FSC/ETI is not repealed, the United States remains in violation of its international tradecommitments. Paying compensation does not bring the United States into compliance. Furthermore,it must first be remembered that compensation in lieu of retaliation is only a viable option if theprevailing party agrees, something the EU is not inclined to do. Even if they were, I am certainlynot going to be the one who suggests on the Senate floor that we start annually sending taxpayermoney to France. I for one don’t think the Congress will buy it. These proposals are nothing morethan a “shell game” expounded by Washington lobbyists in an attempt to confuse Congress and thepublic, thus avoiding a real, permanent solution to the long-standing FSC/ETI dispute. Theseproposals are not realistic and they will not stop the imposition of sanctions. It’s time to face facts!Gambling America’s exports on the volatile currency markets won’t work. Cutting governmentchecks to U.S. exporters won’t work. Transferring taxpayer money to foreign governments won’twork. We need to quit playing “shell games.”

There is only one real solution for America’s workers, and that is getting the JOBS Actpassed now! Now let’s hope the Senate gets to work and puts American manufacturing back in thegame. I urge you to support our bipartisan JOBS Act. I want to see this bill on the President’s deskby Memorial Day.